Property mortgage loan issues / Renegotiations

It has been a well-known practice the last couple of years in the situation of increased off-plan property purchases for many overseas investors to purchase apartments in holiday or residential complexes, and to pay the purchase price via obtaining mortgage loans given by local Bulgarian banks (and usually obtained via authorized Bulgarian mortgage lawyer). The foreign property investors have been atracted by the acceptable amounts of interests on mortgage loans, offered by local banks back then, on one hand, the lack of dependence between their home assets and the loan on the other, and in conclusion, but not on last place – they have been attracted with verbal promises by many overseas agents and local developers for guaranteed rental income of 5 up to 10%, so the investors initially imagined to relate it it towards the re-payment of their mortgage loans. In most cases these promises unfortunately have leaded only only in connecting the poor rental income (in cases where achieved) to payment of the annual maintenance fees binding many apartment owners in Bulgaria. It is understandable for a developer who has initially built a complex, to pursue profit for the future with maintenance contracts offered to apartment owners with secured payment. It is a business world and everybody pursues financial outcome. It is just the fact that back then in the years or massive purchasing of off-plan properties, the overseas investors didn’t seek for a valuable advice on their investment and for clearing their own view on the outcome in cases they have not chosen to maintain a complex on their own via forming a General Meeting and the related bodies. Visit our section General Meetings for more information.

Nowadays in the continuous worldwide financial crisis, many of these apartment owners are meeting difficulties in paying back the mortgage loan monthly installments for their apartments in Bulgaria. Part of them, mostly investors from the UK, already has broken the connection with their local Bulgarian conveyance solicitor. On the other hand the bridge of communication among themselves, their proxies in Bulgaria and the bank is very often broken so they may have not been properly notified by about the complications and prospective bank actions against their properties. In theory within the meaning of the Bulgarian Contracts Law, if the debtor does not contact the bank immediately to re-negotiate with them, this automatically leads to bigger interest on the loan, fines by the banks and sudden request of the whole amount of the loan, i.e. – taking the mortgaged asset to a public auction by the bailiff for repayment towards the bank, following the provisions of the Bulgarian Civil Code. I nsuch procedure all the expenses are added on top of the loan and reprsent additional burden to the debtor, so such situation should be avoided in all cases. And bearing the current low prices of properties placed on the market – somotimes even after a successful sale on a public auction via bidding, it respectively there could be unsatisfied banks after the auction, and request by the bank to the EU home courts in the investor’s residence for burdening their home assets overseas. The reason is simple – on one hand, the mortgaged apartment already does not cost that much as when the time of buing it, but a twice less now; nd on the other hand – still in 2012 it is not legally posible for a Bulgarian physcial individual to claim bancruptcy, resp.release of oblgiations towards creditors (banks). Refer to our section Debt recovery.

In practice – overseas property investors know well that non-repayment by the develoepr of a mortgage loan taken for unfinished developments leads to a burden by banks, where unfortunately the buyers who deposited funds, suffer the consequences, and alternatively - non-payment of a mortgage loan for apartment already bought in finished development, again leads to a burden by the bank – and again the buyer (being already an owner) suffers the consequences, precisely detailed by us above.

Consulting with a Buglarian property lawyer before you fall in non-payment status, is not something difficult, neither expensive. This is why if you are meeting troubles repaying your mortgage loan installments towards a local Buglarian bank, then it is advisable to contact us in advnace to consult you on the terms and conditions of your loan contract, before you fall into permanent non-payment status. We work on the whole territory of Bulgaria and we know banks follow their signed contracts; and sometimes it is really possible for creditors and debtors, bearing the current financial crisis worldwide, to re-negotiate and amend the initially set up terms and conditions, in order to keep and straighten their business relations about the mortgage loan. In other words the benefit for the mortgage debtor is the following:

- to allow the debtor to take a fresh breath for a second until re-organize and secure further repayment of the mortgage loan; and

- to earn them some valuable time for advetising and achieving re-sale of the property towards new atracted buyers, i.e. successfully completing and terminating their relations with the bank. In relation to such opportunity, please refer to our section Property selling.

In many cases a positive solution could be achieved for the client on the matter - so far the local banks are cooperative and open for a discussion as they value their clients. This means that even in cases of non-repayment there could be legal instruments to protect the debtor’s interests and to keep the good trade relations between them and the bank in the future.

Contact us for more information and guidance